• An Economist's View: It's OK to Be Upbeat

    Jan. 1, 2012
    You may not know it from the media, but there is good news in the economic world. For instance, let's begin with Europe. Italy's senate passed an austerity

    You may not know it from the media, but there is good news in the economic world. For instance, let's begin with Europe. Italy's senate passed an austerity measure that should calm fears and put Italy on the path to financial stability. The House of Deputies had yet to vote on the legislation as of this writing, but it is expected to pass there as well. Breathe easier about Europe, things are working out as we discussed in Maui.

    There is a lot of domestic good news as well, which bodes well for consumer demand in the United States for HARDI-related products. Nondefense Capital Goods New Orders (excluding aircraft) is tracking 12.9 percent higher than last year on an annual basis. The rate of rise in the New Orders trend is slowing as we had forecast. Business-to-business spending is improving, and that bodes well for readers of Automation World. Keep the marketing and sales efforts up. The increased market share will help offset the margin erosion you may encounter next year as producer prices move higher and selling prices remain sticky.

    The media reported the creation of 80,000 jobs in October in the Civilian Labor Force (non-farm, seasonally adjusted), and the news was described as “disappointing” and “dismal.” It was hardly that. The number quoted was seasonally adjusted, which is not our first choice. We prefer the unadjusted figures, but we'll get back to that. The 80,000 is a 0.06 percent increase from September — the average October sees a 0.9 percent increase. The 0.06 percent increase matches 2005 and 2007 (recovery years) and is better than 2006, 2008 and 2009. The number is not “dismal” but actually encouraging.

    Even more important is that 883,000 jobs were created on an unadjusted (not seasonally adjusted) basis. That's a steeper-than-normal 0.67 percent increase from September. Other than last October's increase of 0.75 percent, this year's increase was the best since 2004.

    September is usually a weak month for Retail Sales, and you might expect sales to be down. Not so. The United States experienced the second strongest August-to-September rise in seven years, exceeded only by 2010. The seasonal trend is running within a normal historical range, providing a very good sign in terms of ongoing general economic activity in the United States.

    Back-to-school sales turned in a better-than-expected performance, giving retailers greater optimism about the upcoming holiday season. The National Retail Federation is projecting 2.8 percent growth this Christmas, slightly better than the 10-year average. Our fourth quarter projection is for a gain of 2.9 percent over the same quarter last year. One reason for holiday optimism comes from applying the lessons learned over the last three years. Make sure you keep inventories lean; use strategic pricing rather than sporadic sales promotions; understand your local market; and increase your web/social media presence.

    Industry News

    The housing inventory must be soaked up before the demand for new construction can be expected to ramp up. The good news is that sales of existing homes for the last quarter are 17.0 percent higher than this time last year and the annual moving total of homes sold is increasing. Everyone would like to see the rate of consumption increased, but at least the marketplace is moving in the right direction. The number of homes for sale may increase given the August spike in delinquency notices, but for now, the number of homes for sale are running 20.1 percent below year-ago levels on an annual basis, and the number of units is decreasing.

    Commercial construction will be of benefit to distributors who pursue selected contractors and market silos. Consider the following areas:

    • Power Construction

    • Multi-Unit Retail Construction

    • Commercial Construction

    • Correctional Construction

    The dollars spent in each of these areas are moving higher (annual basis). The annual totals are leveling off or have potentially established a low for this business cycle:

    • Medical Buildings

    • Manufacturing Construction

    • Communication Construction

    • Higher-Education Construction

    There are opportunities in the marketplace for aggressive sales-driven organizations in your region.

    Alan Beaulieu is president of the Institute for Trends Research and HARDI's chief economist. For more information, contact Alan at 603/796-2500 or [email protected] or visit www.itreconomics.com. Follow ITR on twitter @ITROutlook. You can also keep current with the latest developments through their blog at www.itreconomics.com/blog.